Lessons to be learned from Commonwealth v Sanofi (No 5) [2020] FCA 543: Evidence, intention and the scope of your preliminary injunction

Key take-aways

• The Commonwealth Government’s claim for compensation under the “usual undertaking” given by Sanofi in respect of its 2007 PLAVIX interlocutory (preliminary) injunction has been dismissed. The Commonwealth claimed for loss connected with the delay in significant statutory reductions in Government subsidies for clopidogrel between during the term of the injunction (2007-2014). The interlocutory injunction was lifted after Sanofi was unsuccessful in its claim for patent infringement against Apotex.
• The trigger for statutory price reductions is the listing of the listing of the first generic equivalent of a pharmaceutical product on the Pharmaceutical Benefits Scheme (PBS) in Australia.
• The Commonwealth did not establish on the evidence that the generic sponsor would have applied for and obtained PBS listing in 2008 (as it had claimed), or that the loss claimed by the Commonwealth was a direct consequence of the 2007 interlocutory injunction. 
• Instead, the generic sponsor had given a voluntarily undertaking to not list its products on the PBS specifically because it did not want to incur the potential liability of triggering the statutory price reductions and causing harm to Sanofi. The “usual undertaking” given by Sanofi applied to the interlocutory injunction it had sought and not the generic sponsor’s undertaking voluntarily proffered to the Court. 
• On a separate question, the Court thought it more likely than not that the statutory price reduction would have been reversed in a counterfactual analysis assuming that Apotex had supplied the market for a period. This finding is likely to be relevant to originators in future interlocutory injunction applications. 

Introduction

In Sydney on Tuesday 28 April, the Federal Court of Australia dismissed the Commonwealth of Australia’s claim for compensation under the “usual undertaking as to damages” arising from an interlocutory (preliminary) injunction obtained by Sanofi that prevented the launch of a generic clopidogrel product by Apotex in 2008. 

This article discusses:

• the basis for the Commonwealth’s claim for compensation
• the determinative conclusions of the Court
• the consequences for the Life Sciences sector and the conduct of pharmaceutical patent litigation in Australia

Claim for compensation under the "usual undertaking as to damages"

The Commonwealth had claimed for losses incurred as a consequence of Apotex having been prevented from supplying its generic clopidogrel products in Australia and obtaining a listing of those products on Australia’s Pharmaceutical Benefits Scheme (PBS) which it said delayed significant statutory reductions in Government subsidies for clopidogrel between 2008 and 2014. Sanofi obtained the interlocutory injunction in 2007 pending the final determination of its claim for patent infringement against Apotex, which was ultimately unsuccessful. 

The Commonwealth’s claims arose as a consequence of:

• Australia’s single-payer healthcare system and PBS regulation which provide for a fixed percentage price drop and ongoing price reductions upon the listing of a first generic equivalent of a pharmaceutical product on the PBS in Australia; and
• The requirement that applicants for interlocutory injunctions give the “usual undertaking as to damages” to the Court in support of the interlocutory injunction. At the time, the usual undertaking was expressed in the following terms:

The Court's decision

In comments whilst handing down his decision, Justice Nicholas stated that the determinative conclusions were that:

1. the Commonwealth did not establish on the evidence that Apotex would have applied for and obtained PBS listing for its generic clopidogrel product from 1 April 2008 as claimed; and
2. it was not established that the loss claimed by the Commonwealth was a direct consequence of the interlocutory injunction granted by the Federal Court as opposed to an undertaking voluntarily given to the Court by Apotex not to list its products on the PBS. 

These conclusions relate to matters of evidence and the form of order granting the interlocutory injunction and do not amount to a principle of general application that would bar future claims by the Commonwealth against originators in similar circumstances. Nonetheless, the Court’s findings on these matters will be instructive for both sides in any future Commonwealth compensation claim and provide guidance for originators that ought to be considered in the pre-commencement phase of pharmaceutical patent litigation in Australia. 

Evidence concerning whether Apotex’s would have applied for and obtained PBS listing

Based on the evidence before it, the Court found or inferred that Apotex Australia had no real interest in launching and marketing its clopidogrel products unless it could obtain a PBS listing for them… there would have been no significant market for the Apotex Australia clopidogrel products in Australia unless they could be supplied to pharmacists at prices that were subsidised under the PBS and that there would have been no commercial benefit to Apotex Australia if it were to market its clopidogrel products in Australia in the absence of a PBS listing. Further, Apotex CEO’s was not expecting that Apotex Australia would be successful in resisting an application for an interlocutory injunction by Sanofi.

The Commonwealth called on evidence from a number of the witnesses employed by the Apotex group (many of whose affidavits had been prepared and filed before Apotex discontinued its damages claim after reaching settlement with Sanofi). Importantly, however, the Commonwealth did not call on the evidence of relevant decision makers within the Apotex group and instead sought to rely on internal Apotex emails to seek to establish by inference that Apotex would have applied for PBS listing in 2008 but for the interlocutory injunction.

The Court was not, however, prepared to infer based on internal emails that PBS listing would have been applied for and procured with effect from 1 April 2008, explaining at [348]:

In my opinion, the Commonwealth’s case suffers from an evidentiary deficiency which cannot be made good by drawing inferences from [internal] correspondence… in the lead up to the hearing of the interlocutory application. 

To the contrary, in fact, the Court noted that the Apotex emails appeared to reveal an intention to use the undertaking as to damages as a means of having Sanofi underwrite the decision not to launch.

More broadly in relation to the Commonwealth’s decision to not lead evidence from relevant decision makers both from Apotex and the Commonwealth, the Court cited the rule in Jones v Dunkel (1959) 101 CLR 298. This rule operates where there is an unexplained failure by a party to call witnesses and may, in appropriate circumstances, lead to an inference that the uncalled evidence would not have assisted the party. The Court appeared to make such an inference on on a separate, counterfactual, question assuming that Apotex had supplied the market for a period before withdrawing. Here, the Court thought it more likely than not that the statutory price reduction would have been reversed and came to this decision (at [528]) “due at least in part to the absence of any evidence from any relevant decision-maker.”  

Why did the “usual undertaking” not apply?

Sanofi gave the usual undertaking in return for orders granting an interlocutory injunction enjoining Apotex from making, selling or supplying, offering to make, sell or supply, using or importing, and keeping its generic clopidogrel products. The terms of the injunction did not prevent Apotex from applying to list its generic clopidogrel products on the PBS. As the Court stated at [443]-[445]:

At most it prevented Apotex Australia from entering the market for clopidogrel in Australia which in turn had the practical effect of denying the Commonwealth the financial benefits it would have obtained were it to have received and accepted an application by Apotex Australia to list its clopidogrel products on the PBS from 1 April 2008.

… The terms of the interlocutory injunction did not prevent Apotex Australia from applying for a PBS listing of its clopidogrel products or from taking any other steps to obtain such a listing. Doing so would not have involved a breach of the interlocutory injunction.

Importantly, the trigger for statutory price reductions under Australia’s PBS is the first listing of a generic product on the PBS not the failure to supply that drug to the market. This meant that although the “Commonwealth’s loss was a natural and direct consequence of Apotex not being able to apply to list its clopidogrel products on the PBS…” this was “not something the interlocutory injunction expressly or implicitly prohibited. This strongly suggests… that the loss alleged by the Commonwealth in this case was an indirect consequence of the interlocutory injunction.”

Given that Sanofi only gave the usual undertaking in support of the interlocutory injunction, the Court concluded at [451] that:

any financial loss suffered by the Commonwealth as a result of Apotex Australia’s clopidogrel products not having been listed on the PBS from 1 April 2008 was not a loss that flowed directly from the existence of the interlocutory injunction but was the direct and immediate consequence of the first Apotex undertaking. This was an undertaking given by Apotex Australia to the Court that was not supported by any cross-undertaking as to damages. The Commonwealth’s loss is therefore not recoverable pursuant to the undertaking as to damages given in support of the interlocutory injunction.

Why was PBS listing the subject of a voluntary undertaking instead of the interlocutory injunction order? 

During the original 2007 hearing on Sanofi’s interlocutory injunction application, the Court indicated that it did not see any proper basis to prevent Apotex from taking steps to list its clopidogrel products on the PBS based on Apotex’s stated position that, should the Court grant the injunction, “the question of needing to restrain us from doing anything with the PBS or restraining the PBS doesn’t arise”. As Apotex’s Senior Counsel explained:

MR CATTERNS: Because, in short your Honour, it’s pointless for us, the question of needing to restrain us from doing anything with the PBS or restraining the PBS doesn’t arise. If your Honour were against us…

HIS HONOUR: Why would that be, why would that be, because - - -

MR CATTERNS: It’s of no value to us, your Honour. We don’t want to get listed, to be candid, we don’t want to be listed on the PBS if we can’t sell. It would damage our friends by bringing their price down twelve and a half per cent.

HIS HONOUR: Yes, that’s a risky thing anyway.

MR CATTERNS: Yes, it will only damage our friends, it’s of no benefit to us, and we will make enemies in the industry.

Consequences for life sciences and the conduct of pharmaceutical patent litigation in Australia

As we have noted, this case turns on its own facts and does not involve any point of principle that would bar a similar claim by the Commonwealth in the future. This means that the ability of the Commonwealth to seek compensation under the usual undertaking will continue to be a factor taken into account in the risk assessment undertaken prior to applying for an injunction in interlocutory proceedings. However, this decision should focus the mind of originators and their legal advisers on the scope of any interlocutory injunction sought as part of a reasoned and pragmatic approach to planning for a potential loss on at the final hearing (and any appeal) in the pre-commencement phase of pharmaceutical patent litigation. 

Originators may also need to again revisit how to frame balance of convenience arguments in view of the Court’s finding, on a separate question, that it was more likely than not that the statutory price reduction would have been reversed in a counterfactual analysis assuming that Apotex had supplied the market for a period before later withdrawing its clopidogrel product.

The case also serves as a warning to third parties claiming compensation under the “usual undertaking” (and generic companies in their own claims for compensation), namely that they risk losing the benefit of the “usual undertaking” if they cannot establish an intention on the part of generic company decision-makers to list and launch their product in Australia (as opposed to merely using the undertaking as to damages as a means of having an originator underwrite a business decision not to launch at that time). Direct evidence from relevant decision makers from relevant organisations (whether or not a party to the proceeding) may be essential if claims of this type are to succeed.